When I joined Streetline almost 2 1/2 years ago there were three macro trends that drove my decision. First, was a strong belief that I wanted to find an industry that was relatively untouched by new technology and one where there was a real problem to be solved that could impact the lives of millions – I choose to engage in the smart city / smart parking industry. Second, it was painfully clear that mobile technology and applications were going to be pervasive and become the primary way we engaged with the internet. The final bet was on the “internet of things” – the belief that sensors were getting good enough and cheap enough to fundamentally alter the way we interacted with our physical environment. Over the last 2 1/2 years I have learnt a lot about how to actually make the internet of things a reality – how do we you create a full technology stack from the sensors and the hardware all the way to the consumer and enterprise applications that can actually take advantage of this new data and information. This is not an easy task, but the results I believe will do nothing short of change how we all live and work.

Much has been written about the internet of things recently, but over the last 2 weeks there have been 2 specific announcements that I think will in retrospect be viewed as a tipping point. The first was a report issued by GE titled “The Industrial Internet: Pushing the Boundaries of Minds and Machines” . The first couple of lines in the executive summary says it all “The world is on the threshold of a new era of innovation and change with the rise of the Industrial Internet. It is taking place through the convergence of the global industrial system with the power of advanced computing, analytics, low-cost sensing and new levels of connectivity permitted by the Internet.” GE goes on to describe what in their view are the 3 major periods of innovation in our history : The Industrial Revolution, The Internet Revolution and now the Industrial Internet. GE believe that the Industrial Internet will add $10-15 trillion to global GDP. This is a grand statement by a world class company that can actually influence the evolution of the internet of things.

Of course there are other major companies that see this future and are positioning their companies for success – IBM has for several years driven its “Smarter Planet” strategy that also has at its heart the analytics that use all this device data to drive greater insight. (disclosure again – IBM is a strategic Streetline partner).

So in my mind there is no doubt that the internet of things will have a profound impact on our lives, our cities, our companies and our planet. This is not a future vision thing – this is happening now !

To all the VC’s out there that in the past have been hesitant to fund start-ups that had a hardware component, I would encourage them to revisit this traditional hypothesis – as you can imagine it is tough to have an internet of things “without things” . The value creation opportunity for start-up in this space is immense – but you need to make sure the solution solves a real world problem.

To aspiring entrepreneurs I would encourage you to be bold and to explore the many aspects of daily life where new data from objects connected to the internet can enhance our experience. For companies, the revenue and cost saving implications are massive (the GE report has some great examples) so see how connecting what you build (eg. printers, cars, planes, ovens, thermostats etc.) to the internet can change the service and value proposition of what you provide.

But what else ? There are such a broad set of opportunities to be captured. So again, here is my question for all of you – if you were starting a new company today in the broader realm of the “internet of things” what would you do. As always welcome the feedback and input.

Day 2 at TED ofcourse did not disappoint – how could I even think it would. What did surprise I think all of us (probably with the exception of Chris and the TED team) was the stark contrast between two brilliant talks. These two discussions presented a very different view of our collective future. This was the “how full is the glass session”

First up was Paul Gilding – former CEO of Greenpeace. Paul’s basic premise was that we are already beyond the point where the planet can sustain us and that in order to support the economy over the next few decades we will need 1.5x the earths resources to do so. Essentially his talk was a call to arms stating that a “crises is a terrible thing to waste” (reminded me of Rahm Emanuel comments about the economic downturn).

Paul knows what he is talking about, is a great speaker and his talk had some good facts – in summary it was depressing !

But here comes the ying to Paul’s yang. Next up was Peter Diamandis – founder of the X Prize and self titled space activist. I had known of Peter ofcourse but had never heard him speak – he is a powerful and passionate speaker. Peter view of the future was not only a full glass, but I would say an overflowing glass. He talked of abundance, he talked of all the incredible positive changes that have occurred over the years, mortality, technology, standard of living etc. His basic view was that we tend to focus on the negative because the media focuses on the negative but we have an incredible abundant future that we can shape. To be fair, he did not ignore the problems of the current like global warming, population growth etc. but be just said we will not only survive but thrive in the future.

So by this time I was feeling much better about the world and the future.

These are two very different view of the world and our collective future – I don’t think one is right, or one is wrong, though I personally gravitate towards Peter’s world view – maybe because I have more hope in humanity or maybe because it is easier to feel good about the positive scenario.

Here we go again, TED 2012 started yesterday in Long Beach. I decided this year to do a short blog post every day on the talk or conversation that most inspired me. Yesterday we had the amazing TEDFellows make their presentations. Wonderful to see these ideas being presented in such a passionate and clear way. There were many great presentations but the one that struck me most was by Ayah Bdeir – Founder of LittleBits . Essential LittleBits is concept where Lego meets engineering.

My younger daughter is a fascinated by building Lego models – but honestly there are just so many Pirates of the Caribbean ships you can build. We need to find more interesting ways in which our children can experience the joy of building new things. LittleBits create a fun, creative and powerful new way for kids to learn how to build great new products. Here is how the LittleBits team describes what they do

“Just as LEGOs™ allow you to create complex structures with very little engineering knowledge, littleBits are simple, intuitive, space-sensitive blocks that make prototyping with sophisticated electronics a matter of snapping small magnets together. Each bit has a simple, unique function (light, sound, sensors, buttons, thresholds, pulse, motors, etc), and modules snap to make larger circuits. With a growing number of available modules, LittleBits aims to move electronics from late stages of the design process to its earliest ones, and from the hands of experts, to those of artists, makers, students and designers.”

True to form the TED team included a LittleBits starter kits in our bag of goodies. Even though there were only a couple of pieces to connect I was fascinated by the simplicity of the parts and how they connected.

Here is a great video showing how to build and have fun with LittleBits. Congratulations to Ayah and her team for creating this great product.

This week I had the privilege of attending IBM’s Think Leadership Forum celebrating the company’s remarkable 100 years of success. One of the more thought provoking presentations was from Tom Friedman, NY Times Foreign Affairs Columnist and co-author of the recent book “That Used To Be Us” (and yes also author of that influential book “The World Is Flat”) . “That Used To Be Us” is a great read and atleast for me really put into context the situation we in the US find ourselves in today from an economic, social and political perspective.

The definition of insanity as many know is “Doing the same thing twice and expecting a different result”. So clearly we need to do things differently – we need to rethink our mental model of what has made the USA great without compromising the core values that have shaped us.

As I reflected on issues raised in Tom’s book I started to think about the incentives that drive public officials and elected officials. Typically for elected officials this is likely to be re-elected and the opportunity to continue to have a positive impact and for public officials it is likely job security, the opportunity to make a difference and work on a cause they believe in and maybe even a sense of patriotic/civic duty.

But are these incentives enough to allow effective leadership in today’s complicated environment? What if the problem lies not so much with the elected and public officials, the majority of whom are good, talented, bright individuals, but more with the system of incentives and compensation that drive their decision making. Who has access to money (in the form of campaign finance and endorsements) and who has more media coverage (in the form of opponent bashing and sound bites) has become part of the incentive system for election and re-election while rolling up the sleeves and getting the job done is often just noise. I am over-simplifying a complicated issue but you get the idea.

We spend a lot of time blaming our elected and public officials for all the problems and issues facing the country – while it may make us feel better I think we need to rethink the issue.

The proposal – What if we revamped public sector incentives to link compensation to key successes metrics that drive the country forward in the direction is required.

I would even argue that we need to pay our public officials a much more competitive salary to attract the best people for the job and ensure the right level of motivation so they can deliver the best results.

Yes all this additional compensation will cost the government more but my assumption is that by compensating for success and assuming we find the right metrics for change we will actually end up saving much more.

The poster child for this kind of a system ofcourse is the Government of Singapore (or as commonly known Singapore Inc.).

My suggestion is not a new one, but it is one that I think is more important for us to explore today than ever before. The right incentive system is the foundation for achieving goals and for enabling change.

Yes there are many issues with this approach, get consensus on the goals, how do you measure the goals, how do you benchmark and how do do you link it to compensation. Also many areas of focus may be social services or national defense where this approach may be an issue.

So maybe Singapore has it right, especially in a services and knowledge based economy, maybe we need to compensate our public officials more aggressively and based on an incentive model based on results.

I am sure many of you will have a view on this, and as usual I look forward to your comments and input.

Like this:

Yesterday’s decision by HP to sell of its PC business prompted me to consider this question of HW vs. SW. I believe the decision by HP to sell of its PC business is the right one (IBM made the same decision in 2005 and was able to transform the company into a highly profitable services and sw giant). Though HP was much more successful in consumer HW than IBM and so watching this transition is going to be interesting to see if they can pull it off. HP CEO Leo Apotheker’s perspective on the future of HP is clear and he is making the bold moves to execute against it – as usual company culture will be the biggest hurdle (disclosure Leo was my direct boss for 4 years before I left SAP).

But I digress – the conventional wisdom seems to have become HW = Bad, low margin, low growth business & SW = Good, high margin, high growth and what smart companies should focus on. This seems also be true in the venture capital community – start up’s that have a HW component to their business are encouraged to ditch the HW piece and focus only on the high margin SW aspects.

You could view the decision by IBM and now HP to ditch their “low margin HW PC business” in favor of higher margin SW and services as a good example of that. After all HP with $120 bn + in revenue has a market cap of $49 bn and SAP that is a pure play enterprise SW company has revenue’s of $20 bn and a market cap of $58 bn – this must be because of the HW margin drag that HP has to carry. This is partly due to the margin differential – but does not explain the real issue.

Newsflash for my no-HW friends – our current poster child for technology and innovation Apple has at the core of its success both a HW and a SW business and is now the company with the largest market cap in the world.

Another newsflash – SW needs to run on HW to make it work.

It is absolutely correct that over time HW becomes commoditized and will have a lower margin than SW – this is a no brainer analysis. If you are in the commodity HW business and are simply selling dumb pieces of HW that becomes valuable with SW from other companies then yes you are much better off having our friends in China build this piece of the stack as they can do it much cheaper and better.

But this conventional analysis misses a much more subtle and critical point – an integrated HW and SW product that is compelling, easy to use, that leverages the strengths of this combination in unique ways and understands the value that each brings to the end user experience is unbeatable.

Could iTunes have been successful without the iPod or in reverse could the iPad have been successful without the apps in the AppStore. Gaming consoles have a combination of both HW and SW packaged in a way that creates a compelling experience. Even the printer division that HP is keeping is a compelling product because the combination of the HW and SW for that product providers the consumers with a winning package.

To make this point even more powerfully – I think the distinction between HW and SW is becoming less and less relevant. The only way to make an object “smart” is by adding SW to it. The number of devices in our lives that have embedded SW is growing dramatically (yes this is partly the “Internet of Things” point). Your local BMW is basically a SW platform now with a car attached to it.

So yes I acknowledge that a HW business that is only a box (to put it simply) has little value and must be produced by the company that can do it for as low a cost as possible – but the real magic is in combination of elegant HW and compelling SW.

So the Right Question in this case is “How can you build a compelling product that combines the best of HW with the best of SW in an experience that is magical” not the simple wisdom of HW is bad lets only focus on SW.

Over my last twelve years working as a senior executive in the technology industry I have had an opportunity to engage with a broad section of technology and IT analysts and researchers – both from established firms (eg. Gartner, Forrester etc.), smaller more focused firms (eg. Altimeter Group) and of course the more recent phenomena of the blogger/independent analyst.

For the most part the people I have encountered are smart, have a good deal of domain knowledge, are good communicators and care about providing timely and accurate analysis and advice. But with all other things, there is a bell curve, there are some people that have amazing insight and I always learn from then, there are a whole bunch in the middle that are solid and sometimes can add good value and as always there are some that really should look to do something else with their time.

This post is not about the individual analysts it is about the analyst industry.

So the issue is not the people – the issue is the structure of the industry and the inherent incentives that lead to sub-optimal analysis and advice that is tainted by accusations of “pay to play”. This is a topic that is not new, and has been discussed before. The general complaint that analysts play both side of the game, they write about vendors and the industry but then also get paid by the vendors thus tainting their advice is an old one.

The reason I thought this topic was important to revisit is because (1) there have been some structural changes to the technology industry that make the current IT analyst model seem archaic and (2) I have some specific thoughts on how we might try and reform the industry.

Why Change is Even More Relevant Today: There are several important changes that have taken place in the technology industry that will require some rethinking of the traditional IT Analyst Industry.

Lack of Defined Categories: Traditionally we have had very specific functional domain experts – the CRM expert, the BI expert etc. I don’t think customers buy in categories any more – they buy solutions that transcend software category boundaries – thus making research papers focused on these categories less relevant.

Integration of Consumer & Enterprise: This is one of the bigger changes in the industry – the “consumerization of the enterprise”. Now more than ever there is no classic enterprise software play. As such, analysis and advice based on deep enterprise background, without the latest thinking on consumer sw trends (and just focusing on social media does not cut it) misses integrating a fundamental change in the industry.

The Rise of the Consumer as the Buyer: Traditional analyst work has focused on providing insight to the CIO and associated IT teams in enterprises. Analysts spend a great deal of time with vendors and CIO – but the decision makers are increasingly the end users. We still see very little end user based research at traditional analyst firms

Not Enough Focus on Start Ups: Research coverage is still based on large and medium sized vendors. This is partly due to the influence of these vendors, partly because they can afford to pay consulting fees and therefore get more attention. The reality is that startups is where the innovation happening and there is no effective model today to provide customers the timely effective insight on the innovation taking place with smaller companies.

What Can We Do – Some Suggestions: IT/Technology Analysts can play an important part in acting as sources of unbiased and informative research and analysis. Here are some suggestions for the industry to consider.

Focus on Industry Segments not SW Categories: The buyer of software is seeking the solution to a problem. These challenges arise out of specific dynamics of an industry (eg. Retail, Banking etc.). Analyst firms should build up much stronger expertise in industry knowledge to make the advice more relevant and specific.

Rate Analysts and Firms: The financial analyst industry has it partly right (notwithstanding the failure of analysis in the financial meltdown). Equity analysts provide very specific recommendations and then based on their insight and accuracy they get a rating. Top analysts and firms get paid more and have more influence – this seems the right approach. I agree that it is marginally easier to rate the accuracy of financial analysts – but I am sure the industry can come up with a standard rating system that provides customers and consumers some insight on this topic. There are plenty of examples and methods to choose from – Yahoo even has a “Analyst Performance Center” for this purpose. This would be a great business idea for an independent firm to provide analyst ratings for IT/Industry analysts – I bet customer and vendors would buy this research.

Transparency of Relationships: This will help address the “pay to play” topic. I think specific analysts and firms should clearly make transparent their economic relationship to a vendor and this information must be attached to every report and visible on the firms website. I think the preference would be to provide the dollar amount but that is probably going to far. A more radical approach to this problem – use “Buy Side” and “Sell Side” analysts. You either work with customers only to advise them on deals etc. or you work with vendors only to write on their innovations.

Stop Using IT Lingo: I have written about this in a previous blog posting “Why Words are Killing the Adoption of Innovation” Somehow we think that the more complicated the words the more insightful and important the analysis. This could not be further from the truth. The industry would be much better placed if they focused on the clarity and simplicity of the analysis. Vendors already make it impossible to understand what they are really selling – sometimes analysts add to this confusion.

Foster Independent and Small Analyst Firms: The consolidation in the analyst industry has resulted in bigger firms with more market power – this is fine, but it should be balanced with smaller and independent firms that innovate on how they are trying to bring new research and analysis to the market. Constellation Research is a new firm that is seeking to innovate in this area and I look forward to following their progress.

These are just a few suggestions for us to consider. I am sure not everyone will agree with me and I am sure my analyst friends will have a relevant point of view based on their experience – I would welcome the feedback.

Vilfredo Pareto is one of my all time hero’s. His famous 80/20 rule has on numerous occasions saved me a lot of time and effort. It is actually quite incredible how often this simple rule that 80% of effects come from 20% of the causes shapes our thinking and our actions.

It is equally incredible how often we ignore this powerful theory and continue to hope that the results will be different if we only keep throwing resources at a problem. The reason I wanted to invoke the memory of Pareto and his famous principle was to explore its application towards the benefits we get from software solutions.

Now I am a firm believer in the benefits of software and how it can and does improve our lives, our businesses and our global economy. But here is the Right Question: At what point do additional improvements or added functionality in a software product make little or no difference in enabling a user to get his/her job done.

Let’s take MS Excel as an example. I would consider myself a moderately sophisticated user of Excel. I have been using Excel for many years especially during my time as a investment banker. Excel was first released in the mid- 1980’s so it has been around for over 25 years. There have been significant improvements in Excel since those early days in user experience, functionality, integration with other programs etc.

But here is the issue. I cannot quantify this but I am pretty sure that in my best Excel moments I do not use more than 10-15% of Excel’s vast capabilities. Yes there are probably some people who use maybe 30-40% but it is more likely that the vast majority use only a small fraction of its formidable capability.

Now let’s look at an example from the world of enterprise software – in particular CRM (Customer Relationship Management software). Now the only goal of CRM is to drive sales in a cost effective manner. There should be no other objective for deploying CRM software. If your company does not have CRM software you can certainly benefit from CRM software at the appropriate stage of scale (no a two person company does not need CRM they just need a piece of paper and a pencil !). But similar to my example of Excel, at what point do you already get the 80% benefits from CRM software ? Is it at the first purchase, is it on release no. 4, or do you ever get there ?

I don’t know the answer and many will rightly argue that “it depends”. This is always a difficult argument to win because it is a powerful argument – especially when you don’t have the courage to make a decision. But as an executive or as a technology professional we are paid to make decisions not live in a land of “it depends economics”.

So here is my assertion. The right software can play a critical role in driving growth and managing costs for any business – here I have no doubts. However, I would also argue that it is more important to have a broader and integrated technology footprint than to go deep (read deploying new versions) in any specific functional category. So, better to have an integrated suite (eg. CRM, financials, supply chain, procurement, HR, mobile workforce etc.) than to buy the version 4.0 of any specific product.

If Pareto is right – and he almost always is – we probably use only 20% of any given software application capability to generate 80% value created. Interesting thought.

I am sure many will disagree with me and I look forward to the comments and input.